Snapshot of recent developments
Tax Alert - August 2020
Tax legislation and policy announcements
Taxation (Annual Rates for 2020-21, Feasibility Expenditure, and Remedial Matters) Bill
As covered in our last issue of Tax Alert, this omnibus bill covers the topics of feasibility expenditure, purchase price allocation, IFRS 16 on leases, habitual buying and selling of land, GST issues and many other remedial changes. Following the first reading of the bill on 24 June 2020, the bill has been referred to the Finance and Expenditure Committee with submissions open until 12 August 2020. This bill will lapse when Parliament dissolves on 12 August 2020 and will need to be reinstated by a new Government post the election.
Fringe Benefit Tax rate on low-interest loans reduced
The Income Tax (Fringe Benefit Tax, Interest on Loans) Amendment Regulations 2020 came into force on 23 July 2020. This Order in Council amends the Income Tax (Fringe Benefit Tax, Interest on Loans) Regulations 1995 by reducing the rate of interest that applies for fringe benefit tax purposes to employment-related loans from 5.26% to 4.50%. The new rate applies for the quarter beginning 1 July 2020 and subsequent quarters.
Deemed rate of return on attributing interests in Foreign Investment Funds
The Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2019/20 Income Year) Order 2020 came into force on 10 July 2020. The order sets, for the 2019/20 income year, the deemed rate of return used to calculate foreign investment fund income set out in section EX 55 (Deemed rate of return method) of the Income Tax Act 2007 at 5.05%. The deemed rate of return for the 2018/19 income year was 5.86%.
Small Business Cashflow Loan application deadline extended
The Government has extended the deadline for making a loan application from 24 July 2020 to 31 December 2020. Microbusinesses (with between one and five staff) have made good use of the scheme to date. This extension will give businesses more time to carefully evaluate their situation as the economy continues to open in the coming months. More details about the scheme are included in our May 2020 Tax Alert.
Model rules in the sharing and gig economy
The OECD has released Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy for governments to implement (if they wish to do so), which are targeted at online platforms facilitating transactions between users and sellers of ‘Relevant Services’, such as Uber and Airbnb. The rules are in place to collect data on the sellers to ensure they are complying with taxes.
Under these rules, online or software based ‘Platforms’ in particular have to report the income information passing through their systems, as well as other identifiable information. The reporting requirements are targeted at entities who are facilitating transactions between users and sellers (i.e. the transaction between the rideshare driver and the passenger), to get these platforms to report how much money is passing hands. We understand Inland Revenue are reviewing these proposals.
Corporate Tax Statistics Database
The OECD has released its annual corporate tax statistics. The data is aggregated from the Country by Country Reporting requirements. It covers the activities of nearly 4,000 multinational enterprise groups, headquartered in 26 jurisdictions and with operations across more than 100 jurisdictions. Information on Controlled Foreign Companies has been collected for the first time. The OECD recognises the limitations of the data but considers these observations are ‘indicative of the existence of Base Erosion Profit Shifting (BEPS) behaviour’, and reinforces the need to continue to address the remaining BEPS issues and the tax challenges arising from digitalisation. The data also shows that corporate income tax remains a significant source of tax revenue across the globe, accounting for 14.6% of total tax revenue on average across 93 jurisdictions.
Inland Revenue statements and guidance – Finalised items
Foreign tax credits for NZ investors in US Limited Liability Company
On 24 June 2020, Inland Revenue issued five public rulings and commentary on the circumstances in which a foreign tax credit is available to a NZ investor in a US Limited Liability Company (LLC). The rulings apply from 24 June 2020 to 24 June 2023.
The rulings and commentary set out the income tax treatment and availability of a foreign tax credit for NZ investors in a US LLC, which is taxed on a fiscally transparent basis as a partnership in the US but as a company in NZ. They demonstrate the different treatment depending on how the interest in a US LLC is classified.
Natural love and affection exception to debt remission income for look-through company
On 24 June 2020, Inland Revenue released Questions We’ve Been Asked QB 20/02 – Income tax – Natural love and affection exception to debt remission income for look-through company. This is a finalisation of the previous draft consultation item issued in February 2020. The document considers whether a look-through company (LTC) derives debt remission income when a close friend or family member of the LTC’s shareholders forgives a loan made to the LTC. It concludes that:
• section EW 46C (consideration when debt forgiven within economic group) of the Income Tax Act 2007 prevents the LTC from deriving debt remission income where all of the shareholders and the close friend or family member have natural love and affection for each other.
• the Commissioner will generally accept that the shareholders and the close friend or family member have natural love and affection for each other.
Tax payments – when received in time
On 3 July 2020, Inland Revenue released standard practice statement SPS 20/04 – Tax payments – when received in time to update and replace SPS 20/01 Tax payments – when received in time, applying from 2 July 2020. This statement reflects changes to payment methods and related processes introduced as part of Inland Revenue's transformation programme that have been discussed with community representative groups prior to implementation.
Director’s liability and the COVID-19 “safe-harbour”
On 10 July 2020, Inland Revenue released public ruling BR PUB 20/06: Income Tax and Goods and Services tax – Director’s liability and the COVID-19 “safe harbour” in Schedule 12 to the Companies Act 1993. This ruling considers section HD 15 (asset stripping of companies) of the Income Tax Act 2007 and section 61 (liability for tax payable by company left with insufficient assets) of the Goods and Services Act 1985 (which relate to directors’ liability for tax of a company). Specifically, the ruling considers whether these sections apply to a director of a company affected by COVID-19 who has relied on the safe harbour in Schedule 12 of the Companies Act 1993. The ruling concludes that, of itself, reliance on the safe harbour by a director, and the company continuing to trade or carry on business or incur new obligations on commercial, ordinary business terms, will not result in the application of those provisions. This ruling applies from 3 April 2020 to 30 September 2020.
The Disputes Resolution Process and Fair Trial Rights
On 22 July 2020, Inland Revenue issued Commissioner’s Statement CS 20/04 – The Disputes Resolution Process and Fair Trial Rights which applies from the date of issue. This statement sets out the broad approach that the Commissioner is taking to preserve a taxpayer’s fair trial rights in criminal proceedings when there is a contemporaneous civil dispute.
COVID-19 extended period to make election for GST ratio method
Inland Revenue has extended the date (section RC 15 – choosing to use GST ratio of the Income Tax Act 2007) by which taxpayers need to inform Inland Revenue of their election to use the GST ratio method for calculating their provisional tax payments for the 2021 tax year. Taxpayers have until 19 August 2020, or the day before the start of their 2021 income year, whichever is the later, to make the election.
COVID-19 Provisional tax changes
On 4 August 2020 the Government passed the COVID-19 Response (Further Management Measures) Legislation Bill (No 2), under urgency. This will provide relief from interest and penalties for taxpayers who use the standard (uplift) method, have residual income tax of less than $1 million in the 2021 income year, and who have been adversely impacted by COVID-19. If these taxpayers pay a reduced amount of 2021 provisional tax, in line with their forecasted expectations, the Commissioner has the ability to remit interest and penalties on an underpayment. We will include further details of this legislation in the next edition of Tax Alert.
Note: The items covered here include only those items not covered in other articles in this issue of Tax Alert.
August 2020 Tax Alert contents
- Are you remote working in New Zealand for a foreign employer?
- I’m returning to New Zealand, what does this mean from a tax perspective?
- When does a smoke alarm stop being a smoke alarm?
- COVID-19: Preparing for a wage subsidy audit – Would your business be ready?
- Update to Inland Revenue’s administrative guidance on small value loans
- Inland Revenue’s Interpretation Statements on overseas residential rental properties finalised
- Keeping up to date with GST developments
- Could you be eligible for a diesel road user charges refund?
- Snapshot of recent developments